Thursday, 25 November 2010

Just how long does it take the leaders of the European Union to accept the obvious? They remind me of the old football coach who kept running the fullback into the line over and over again despite never gaining more than a couple of yards. Time to change the play, coach.

The by-now clear-to-all-outside-Brussels reality is that the grand single currency program was launched with fatal flaws, flaws ignored by all except a few curmudgeons whose warnings were drowned out in the euphoria of the moment. To point out the obvious absurdity of linking the German economy with the likes of Greece and Ireland with the single strand of a thin, very thin monetary union was to stand against the holy grail of a unified Europe, a Europe that could stand up to the United States and other large powers, a Europe that could play a major role on the world stage. The price of that conceit is that the European Union now can not even get a ticket to the cheap seats in the balcony let alone play on the stage.

Countries like England, who wisely stayed out of the common currency, and Norway, who stayed out of the entire European Union project, are quietly congratulating themselves on dodging this particular bullet. Despite not being on a member of the common currency England has offered to lend £7 billion that it doesn’t really have to the Irish. This has nothing to do with saving the Euro and everything to do with preserving England’s lucrative trade with Ireland. Tough to sell anything when the customer is flat broke.

A logical person might think that when confronted with a series of overwhelming problems it is time to stop making them worse. In other words, stop digging. But no, the leaders of the EU continue to wield shovels at a faster rate even as they slip out of sight beneath the surface. The Greek economic myth imploded last spring and is now just barely surviving on a €110 billion life support system. Much more will be needed if the patient is going to make it even as far as intensive care. The only visitors allowed right now are family and friends from the IMF. The once-proud Irish banking system turned out to be a massive IED, much more lethal than anything the amateurs in the Taliban can come up with. We now have the odd situation where the EU is trying to force a loan on Ireland, but only if the enterprising Irish raise their tax levels to the outlandish French and German levels. Ireland is, naturally, baulking at this.

We still hear the EU leaders talking about ‘European’ rescue plans when everyone this side of Mars knows that in this instance ‘Europe’ means Germany. Tough to see Bulgaria or Romania coming up with much in the way of aid unless, of course, they turn to the best entrepreneurs in Europe, their home-grown Mafia. Just think of the vigorish the Mafia loan-sharks could get lending the odd billion Euros to Ireland, Greece or Portugal. At least the Mafia would have a chance of getting its money back.

It might come to this because the last I heard Hans in Stuttgart was not overly thrilled about handing out good money after bad to what he considers shiftless bums on the periphery of Europe. German Chancellor Angela Merkel is clearly feeling the heat from voters and might, just might, force the wooly thinkers in Brussels to face some cold, cruel realities.

Instead of devising ever more expensive temporary aid packages why don’t the geniuses who got Europe into this mess spend their time redesigning the project? Such an effort would require first of all throwing out some worn-out old taboos warning that any redesign would ‘wreck’ Europe and cause chaos. Rubbish. It would very probably save the European project by demonstrating common sense that is sorely lacking. The markets are vibrant enough to absorb a redesign, and some techie deep in the bowels of Goldman Sachs would soon figure out a way to make money on the deal.

There is absolutely no way that small countries like Portugal, Greece or Ireland should be in the same currency union with countries like France and Germany. Either there has to be complete political as well as economic union in Europe or the peripheral countries have to be allowed to go back to their local currencies – or at the very least a subordinated Euro. Such a move would give them much more flexibility to deal with economic problems. Of course this would be difficult and challenging, but hardly impossible. It’s time for the people in Brussels to start earning their salaries.

The alternative of muddling though is simply neither socially equitable nor politically feasible. The economic and social changes being forced on these countries just to keep them in the Euro will condemn them to several years of very low to no growth and continued social upheaval. Essentially the people are being asked to devalue their living standards just so the Euro project can continue as originally designed. Any politician backing such a program will assure himself of an early retirement.

It’s time for the EU to swallow some pride and face reality. Have the courage either to go forward openly (a word the Eurocrats hate) into an honest and full federal union or re-design the currency union. The time for the usual Euro-fudge is long over.

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About Me

I worked as a fund manager and investment banker in Turkey and the Middle East for 25 years. Over the years I have travelled extensively throughout the region and have met many of the leading government officials, business and cultural leaders. I am married to a Greek and now divide my time between London, Turkey, and an island in the Aegean.